Australian housing sector faces risk amid deteriorating volume cycle - MS

Investing.com - Despite robust property price signals, the Australian housing sector is experiencing a deteriorating volume cycle, according to a research note from Morgan Stanley (NYSE:MS).

The firm suggests that the strong price growth, which has seen Australian property prices rise 14% since the start of the tightening cycle, is masking a significant downturn in broader housing sector activity levels.

The note highlights that the backlog in volumes that has upheld completions and sector earnings now appears to be running out. The impact of higher-for-longer RBA rates is also affecting consumption.

Morgan Stanley analysts highlighted several red flags, including accelerating insolvencies in residential construction and a clear state divergence. The much-needed supply response appears to be long-dated and aspirational at best.

The note also discusses the inflation outlook, with headline CPI for May expected to rise to 3.8%Y, primarily driven by base effects despite a small monthly decline in prices.

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The RBA's June meeting saw the central bank hold rates as expected, with a slightly more hawkish statement reflecting steady inflation, increased government spending, and upward consumer revisions.

The ASX200 closed up 0.9% last week, with the index up 4.5% CYTD.